Task Background: A very important and repetitive transaction in our lives is the purchase of products and services. Understanding markups and markdowns is crucial when finding the best deal on a product or service as a consumer, or when finding the optimal selling price of a product or service for a business owner. Markup refers to the amount of money above the cost of a product or service that a business will charge when calculating the selling price for that product or service. Markdown is the reduction in selling price of a product or service based on a percentage of the original selling price. These two concepts affect everyone in all areas of life, from purchasing items, to increasing or decreasing sales of a company, to applying percentage changes in medication.
Part I: Discussing Markups and Markdowns
Primary Task Response: Within the Discussion Board area, write 3–4 paragraphs that respond to the following questions with your thoughts, ideas, and comments. This will be the foundation for future discussions by your classmates. Be substantive and clear, and use examples to reinforce your ideas.
Task Assignment: There are specific procedures to calculate markups and markdowns. Below, you will find four problems in the following areas: Criminal Justice, Business, Medical, and Real Life. Please select any TWO for completion of the task. You must show all steps and every single calculation. Thoroughly explain how and why you did each calculation with complete sentences. Include discussion relating the problem to your own personal experiences or to the real world.
Criminal Justice
Suppose your police department is planning to purchase 70 new laptops for its patrol cars.
- Research and find a particular selling price for any style of laptop.
- Suppose that the laptops are marked down 3% off the total selling price. Calculate how much the department will save with the 3% savings.
- Why might the laptop provider give the police department a markdown on the purchase of those laptops? Explain clearly.
Business
All businesses must offer incentives to increase sales, not only to keep old customers, but also to attract new customers. The business, however, needs to make a profit to stay in business. At the same time, when sales are slow, businesses can attract customers by reducing their prices.
- Research any product and discuss the relationship between cost, selling price, and markup for this product. Make sure to discuss the formula that relates these three amounts.
- Present an example of a time when you have used markdowns in your daily life. (There is no need for specific numbers; just give a general example.)
- What are the advantages of markdowns? What are the disadvantages?
Medical
In 2004, the rates charged to many uninsured and other self-pay patients for hospital services were often 2.5 times what most health insurance companies actually paid and more than three times the hospital’s Medicare-allowable costs.
- Give a real-life example of a medical service for which someone with health insurance pays a particular price. (Hint: This may take research to find the price of a medical service for an insured individual.)
- Using the same example, suppose that a self-pay patient is marked up 2.5 times the amount that the insured patient pays. How much would the self-pay patient pay?
- What are the advantages and disadvantages for the hospital to have markups? What are the advantages and disadvantages for the insurance company to have markdowns?
Real Life
Retail stores often have signs in front of their shop that say, “Take an additional 30% off of already reduced merchandise!” To a consumer, this seems like a great deal, but it is actually not as great a deal as it may first seem. A series of markdowns is not the same as taking the total sum of the same markdowns. For example, a markdown of 25% followed by a markdown of 30% is not the same as a 55% total markdown.
- Research a product that you want to purchase.
- Using your product of choice, show how a series markdown is different from a total markdown. (Note: Use markdown percentage values of your choice, but do not use the above given values.)
